results for the 6 months to 30 june 2018 - sopheon · 2020-06-03 · alice lane / camille gochez...

Embargoed release: 07:00hrs Thursday 23 August 2018

SOPHEON PLC (“Sopheon”, the “Company” or the “Group”)

RESULTS FOR THE 6 MONTHS TO 30 JUNE 2018

Sopheon plc, the international provider of software and services for Enterprise Innovation Management

solutions, announces its unaudited half-yearly financial report for the six months ended 30 June 2018

together with a business review and outlook statement for the second half of the year.

HIGHLIGHTS:

Revenue: $15.9m (2017: $12.5m)

EBITDA1: $4.1m (2017: $3.0m)

Profit before tax: $2.8m (2017: $1.8m)

Net cash: $15.5m (2017: $6.6m)

Reporting 27% growth in revenue, and 62% growth in profit before tax, the business maintains its

positive strategic and financial trajectory.

Momentum from 2017 customer wins was boosted by 29 license events in the period (2017: 28).

These orders included 9 new customer wins (2017: 6) as both the market, and our reputation and

position, continue to advance.

Revenue visibility2 for full-year 2018 at $27.2m (2017: $20.3m).

Further success in extending the use of Accolade beyond our innovation roots. We continue to

make advancements in applying our software to link corporate strategy to operational execution,

enabling customers to accomplish swift pivots to realize new strategic ambitions with speed.

Diluted EPS rose to 25 cents (2017: 18 cents) per share. Maiden dividend of 2.5p per share has

been paid in July.

Sopheon’s Chairman, Barry Mence said: “Alongside ensuring strategic progress and position, we

remain focused on our revenue and profit objectives. This is underlined by our record first half

performance for revenue and profit, our record revenue visibility of $27.2m, our record cash balances,

and our maiden dividend declaration. The final quarter has always had a strong weighting on the overall

results for the year, and as we move through the summer our commercial teams remain highly active.

Noting this, the Board in turn remains confident that the Group is trading comfortably in line with

market expectations.”

FOR FURTHER INFORMATION CONTACT:

Barry Mence, Chairman

Arif Karimjee, CFO

Sopheon plc + 44 (0) 1276 919 560

Carl Holmes / Giles Rolls (corporate finance)

Alice Lane / Camille Gochez (ECM)

finnCap Ltd + 44 (0) 20 7220 0500

About Sopheon. Sopheon (LSE: SPE) partners with customers to provide complete enterprise

innovation management solutions including software, expertise, and best practices, that enable them to

achieve exceptional long-term revenue growth and profitability. Sopheon’s Accolade solution provides

unique, fully-integrated coverage for the entire innovation management and new product development

lifecycle, including strategic innovation planning, roadmapping, idea and concept development, process

and project management, portfolio management and resource planning. Sopheon’s solutions have been

implemented by over 250 customers with over 60,000 users in over 50 countries. Sopheon is listed on

AIM, operated by the London Stock Exchange. For more information, please visit www.sopheon.com 1 EBITDA is defined in Note 3. 2Revenue visibility is defined in Note 5.

Sopheon® and Accolade® are trademarks of Sopheon.

https://www.sopheon.com/?utm_source=PressRelease&utm_medium=Press&utm_campaign=PR-Gen



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CHAIRMAN’S STATEMENT

TRADING PERFORMANCE AND RESULTS

With 27 percent growth in revenues to $15.9m, the first half of 2018 continues a trend of rising first half

performance building on $12.5m in 2017, $11.5m in 2016 and $8.4m in 2015. As previously reported

we entered the period with a strong visibility tailwind thanks to a standout performance in the

traditionally strong final quarter the year before. Delivery of this business made a substantial

contribution to first half revenues, but commercial success also accelerated during the first half, with 29

license transactions including 9 new customers (2017: 28 and 6 respectively).

The geographical footprint of the new customers was widespread, with wins in Japan, Germany, USA,

UK and the Benelux, and in several industry sectors including automobile and vehicle manufacturing,

food, diversified industrial manufacturing, and aerospace and defense. While the majority of license

transactions were perpetual, we did sign a number of Software-as-a-Service (SaaS) deals and extensions

including a major new win, overall adding $0.6m in annual SaaS business during the period. In total the

recurring revenue base has risen to $13.7m from $10.5m a year ago. In addition to new license business,

we were pleased to sign substantial service extensions alongside delivery of a range of implementation

and upgrade projects. Overall, revenue mix between license, service and maintenance/hosting was

30:32:38 respectively, compared to 27:34:39 in the first half of last year, a relatively stable spread.

Looking at the business holistically, we are encouraged by the more consistent blend of recurring

revenue, delivery of previous period signed business and the impact of new signings. This perspective

is underlined by the fact we now have revenue visibility of $27.2m for 2018, compared to $23.5m at the

time of our annual general meeting, and compared to $20.3m for 2017 at this time last year.

Sourcing quality people is a continuing challenge for Sopheon as it is for many other technology

companies, and hiring of new staff has lagged our plans. Nevertheless, we have made some good

progress and we had 144 staff at the end of the period, compared to 132 at the end of December, and

123 at the end of the previous June. During the year preceding this report, staff have been added in all

areas, but in particular delivery and development as we position the Company to ensure continued

market leadership and customer satisfaction. This includes hiring Steve Alexander, a very experienced

executive based in the USA to lead our global service delivery team. Maximizing lifetime revenue is a

rising theme within the Group that guides many of our strategic decisions and annual initiatives. To

support this we have ambitious hiring plans for the remainder of 2018, and recruitment will continue

through to the end of the period. Alongside new people, we have steadily been adding to office facilities

and other supporting infrastructure.

Gross margin for the period was consistent at 71 percent compared to 72 percent in 2017. Direct costs

include costs for license and support for certain OEM components of our solution, costs of our hosting

operations, and certain indirect taxes; but the main component is the cost of our delivery teams and

associated subcontractors. This has of course risen overall with rising delivery demand, but remains

broadly consistent as a proportion of services revenue. Sales and marketing costs have also increased to

$4.1m from $3.5m last year, reflecting both higher staff levels and stronger commissions on the back of

the higher sales productivity. The effect of the new hires offset by capitalization has resulted in higher

net R&D expense in the income statement of $2.4m compared to $2.1m last year. The effect of

capitalization and amortization of product development costs was negligible, with $1.2m capitalized in

the period compared to $1.0m last year, offset by $1.1m of amortization (2017: $1.1m). Finally,

administrative expenses (which includes all other overheads, office costs, regulatory and compliance

costs, and depreciation) show an overall increase to $1.9m from $1.6m last year.

Profit before tax reported for the half-year period was $2.8m (2017: $1.8m). This result includes

interest, depreciation and amortization costs amounting to $1.3m (2017: $1.3m). The EBITDA result

for the first half of 2018, which does not include these elements, was $4.1m (2016: $3.0m). No

adjustment has been recorded to the deferred tax asset, however provision has been made for

approximately $0.2m in current tax for the US and German entities giving a final profit after tax of

$2.6m compared to $1.8m the year before. Basic and diluted EPS have both risen to 26.34 and 24.99

cents respectively (2017: 24.10 and 18.01) and this in the context of a higher number of shares in issue.

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BALANCE SHEET AND CORPORATE

Net assets at 30 June 2018 have grown to $21.6m (30 June 2017: $12.3m), with net cash after borrowings

at the end of the period rising to $15.5m (30 June 2017: $6.6m), further evidence of the solid corporate

progress over the past 12 months and underpinning execution of our plans for the business. Much of the

increase stems from collection of the traditionally high year-end receivables balances, in turn linked to

the very strong fourth quarter performance as well as the high number of recurring revenue renewals at

that time of year.

Of the cash balance, approximately $7.1m was held in US Dollars, $6.7m in Euros and the balance of

$1.7m in Sterling (30 June 2016: $5.6m $3.2m, and debt of $2.2m respectively). With recent rises in

USD deposit interest rates to meaningful levels, with the help of Silicon Valley Bank we have also

implemented a cash sweep program to invest our USD balances into overnight treasuries. Intangible

assets at 30 June 2018 stood at $5.9m (30 June 2017: $5.4m). This includes (i) $4.9m being the net

book value of capitalized research and development (30 June 2016: $4.4m) and (ii) $1.0m (30 June

2016: $1.0m) being the net book value of acquired intangible assets. During the period and as in prior

years, capitalization costs were broadly offset by amortization charges.

The Group has longstanding bank facilities with the London branch of Silicon Valley Bank. These

comprise a term loan of $0.5m repayable in 36 equal monthly instalments, and a $3m revolving line of

credit, only used on demand. At 30 June 2017 the Group’s total liability in relation to these loans was

$0.4m (2017: $2.4m). The current term of the facilities is through to January 2019 and renewal options

are under consideration. Both facilities bear interest at rates of 2.75 percent over Wall Street Prime,

resulting in a current effective rate of 7.25 percent. The facilities are subject to covenants and drawdown

mechanics based on working capital ratios.

Until its conversion into equity on 22 December 2017, the Group also had a £2m convertible unsecured

loan stock instrument outstanding, held by a group of investors including key members of the Board and

senior management team and which was reflected in the balance sheet at 30 June 2017.

Following several years of clarifying our debt, equity and listing structure, other corporate activity has

been relatively quiet in the first half of the year with the exception of the declaration of the Group’s

maiden dividend of 2.5p per share ($0.33m in total), approved by the shareholders in the annual general

meeting held on 7 June 2018 and paid on 6 July 2018.

STRATEGY AND PRODUCT

Sopheon’s strategy is progressing, supported by additional momentum and market validation, to help

our customers achieve exceptional long-term growth and profitability through sustainable innovation –

while helping them navigate ongoing disruption in their markets. Our growing momentum is evidenced

by the 50% higher number of new client wins secured over last year at this time, as referenced above.

From the market standpoint, we see increased evidence of corporations suffering from the multitude of

stand-alone systems built over time, resulting in isolated pockets of information silos in different

functional areas. This operational disconnect prevents organizations from responding with speed to

external market changes. Sopheon has created a software solution that connects the disconnected parts

of these global enterprises, delivering an end-to-end, cross-functional decision-making platform that

links the strategic ambitions of the corporation to the execution activities required to achieve those

ambitions.

In the first half of this year, we made further progress in expanding our “lifetime value” opportunities

across a number of our blue chip clients, by extending the business application areas addressed by our

solution. We continue to advance our vision in partnership with our strategic clients, leveraging sound

advice and learnings to pave the way for our ecosystem to increase the value received from our software.

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Sopheon is not alone in reporting this growth in the enterprise innovation market. The business analyst

community continues to expand coverage of the emerging components that make up the market which

Sopheon occupies. Sopheon was mentioned by analysts in 20 individual reports in 2017, and we are on

course to exceed that in 2018. The sources of such reports include Gartner, Forrester Research, and

others. Sopheon’s leadership position was also validated in March by Consumer Goods Technology

magazine through a customer-based evaluation that voted Sopheon the number one supplier of new

product development and introduction solutions.

Our firm commitment to invest in advancing our product as a cornerstone of our business is unwavering,

and we are on track to achieve our aggressive release schedule again in 2018. We released Accolade

version 12.0 earlier in the year, and will be releasing version 12.1 shortly.

In our latest software releases we have continued to enhance the user experience with both improved

look and feel, a new mobile app, and enhanced usability through simplification and role-focused

workflows. In addition, we continue to make advancements in linking the corporate strategy to

operational execution, enabling customers to accomplish swift pivots to realize new strategic ambitions

with speed. We have also stepped up the pace of capturing and sharing Sopheon best-practice content,

and innovation methodology, and expect to continue doing so into 2019, thereby driving further

differentiation from alternative solutions.

OUTLOOK

As described above, our growing success can be attributed to both a rapidly evolving market for what

we offer, and also to the way we have chosen to address that market. Several years ago we shifted our

vision from providing a process automation tool for research and development, to offering an enterprise

platform for innovation and strategy responsive to the needs of large corporates. We have also

consistently adopted an overtly vertical orientation to the market, and to the configuration and expertise

embedded in our solution. In our view these principles continue to position us very well, and the rising

momentum and market recognition testify to that view.

Our forward growth strategy remains simple and consistent – to continue to build on our current

operational momentum, and execute on our three over-arching initiatives as outlined in our annual

report: (i) capitalize on existing blue chip client relationships to extend Accolade as the digital platform

of choice to empower enterprise adaptability across a global organization; (ii) increase new client

acquisition investment in target verticals through deeper specialization and domain-specific expertise;

and (iii) expand commercial reach through distribution partnerships – channel, strategic and

geographical – to develop and monetize an Accolade ecosystem. In order to deliver on these growth

strategies, we have ambitious investment plans for 2018 involving product, people and processes and

we will continue to press forward with these plans on all fronts. As we have stated, we will also consider

targeted M&A opportunities where they are aligned with our strategic goals.

Alongside ensuring strategic progress and position, we remain focused on our revenue and profit

objectives. This is underlined by our record first half performance for revenue and profit, our record

revenue visibility of $27.2m, our record cash balances, and our maiden dividend declaration. The final

quarter has always had a strong weighting on the overall results for the year, and as we move through

the summer our commercial teams remain highly active. Noting this, the Board in turn remains confident

that the Group is trading comfortably in line with market expectations.

Barry Mence

Chairman 22 August 2018

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CONSOLIDATED INCOME STATEMENT FOR THE

SIX MONTHS ENDED 30 JUNE 2018 AND 30 JUNE 2017

2018 2017 $’000 $’000

Note (unaudited) (unaudited)

Revenue 3 15,930 12,505 Cost of sales (4,605) (3,494)

Gross profit 11,325 9,011 Sales and marketing expense (4,113) (3,470) Research and development expense (2,423) (2,073) Administrative expense (1,933) (1,580)

Operating profit 2,856 1,888 Finance income 37 - Finance expense (45) (135)

Profit for the period before tax 3 2,848 1,753

Income tax (charge)/credit 7 (203) 27

Profit for the period 2,645 1,780

Earnings per share - basic in cents 4 26.34c 24.10c

Earnings per share - fully diluted in cents 4 24.99c 18.01c

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE


2018 2017 $’000 $’000 (unaudited) (unaudited)

Profit for the period 2,645 1,780 Amounts that may be recycled in future periods Exchange differences on translation of foreign operations (42) (19)

Total comprehensive profit for the period 2,603 1,761

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AT 30 JUNE 2018 AND 30 JUNE 2017

30 June 31 Dec 30 June 2018 2017 2017 $’000 $’000 $’000

Note (unaudited) (audited) (unaudited) Assets Non-current assets Property, plant and equipment 526 417 327 Intangible assets 6 5,906 5,821 5,441 Deferred tax asset 7 2,010 2,010 1,366

1,3661366

1366 Other receivable 19 19 19

8,461 8,267 7,153 Current assets Trade and other receivables 9,664 15,387 7,877 Cash and cash equivalents 15,990 12,729 11,486

25,654 28,116 19,363

Total assets 34,115 36,383 26,516 Liabilities

Current liabilities Borrowings 441 3,171 2,271 Contract liabilities 7,536 8,345 5,773 Trade and other payables 4,559 6,239 3,561

12,536 17,755 11,605 Non-current liabilities Borrowings - 28 2,634

Total liabilities 12,536 17,783 14,239

Net assets 21,579 18,600 12,277

Equity Share capital 3,115 3,079 2,398 Capital reserves 8,060 7,720 5,891 Translation reserve 322 364 314 Retained earnings 10,082 7,437 3,674

Total equity 21,579 18,600 12,277

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CONSOLIDATED CASH FLOW STATEMENT FOR THE


2018 2017 $’000 $’000 (unaudited) (unaudited)

Operating Activities Profit for the period 2,645 1,780 Finance income (37) - Finance expense 45 135 Depreciation of property, plant and equipment 136 83 Amortization of intangible assets 1,129 1,068 Share based payment expense 188 75 Deferred tax credit -

(27)

(27(27) Operating cash flows before movement in working capital 4,106 3,114 Decrease in receivables 5,688 1,979 (Decrease) in payables (2,403) (1,610)

Net cash from operating activities 7,391 3,483 Investing Activities Finance income 37 - Purchases of property, plant and equipment (245) (160) Capitalization of development costs (1,213) (1,040)

Net cash used in investing activities (1,421) (1,200) Financing Activities Exercise of share options 188 21 Repayment of borrowings (85) (85) Movement in amounts drawn under lines of credit (2,674) (900) Finance expense (46) (135)

Net cash used in financing activities (2,617) (1,099)

Net increase in cash and cash equivalents 3,353 1,184

Cash and cash equivalents at the beginning of the period 12,729 10,061 Effect of foreign exchange rate changes (92) 241

Cash and cash equivalents at the end of the period 15,990 11,486

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE


Trans-

Share Capital lation Retained Capital Reserves Reserve Earnings Total

$’000 $’000 $’000 $’000 $’000

At 1 January 2017 (audited) 2,375 5,843 333 1,806 10,357 Issues of shares 23 61 - - 84 Share based payments - 75 - - 75 Lapsing or expiry of share options - (88) - 88 - Profit for the period before tax - - - 1,753 1,753 Deferred tax credit - - - 27 27 Other comprehensive income - - (19) - (19)

At 30 June 2017 (unaudited) 2,398 5,891 314 3,674 12,277

Issues of shares 681 1,925 - - 2,606 Share based payments - 98 - - 98 Lapsing or expiry of share options - (2) - 2 Purchase of shares by Esot - (29) - - (29) Transfer of equity

conversion reserve

reserve - (163) - 163 -

Profit for the period before tax - - - 2,953 2,953

Deferred tax credit - - - 645 645

Other comprehensive income - - 50 - 50

At 31 December 2017 (audited) 3,079 7,720 364 7,437 18,600

Issues of shares 36 152 - - 188 Share based payments - 188 - - 188 Profit for the period before tax - - - 2,848 2,848 Tax charge - - - (203) (203) Other comprehensive income - - (42) - (42)

At 30 June 2018 (unaudited) 3,115 8,060 322 10,082 21,579

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL INFORMATION

Sopheon plc is a company domiciled in England. The interim financial information of the Company for

the six months ended 30 June 2018 comprise the Company and its subsidiaries (together referred to as

the "Group").

The Board of Directors approved this interim report on 22 August 2018.

2. PRINCIPAL ACCOUNTING POLICIES

Basis of preparation and accounting policies

These interim consolidated financial statements have been prepared using accounting policies based on

International Financial Reporting Standards (IFRS and IFRIC Interpretations) issued by the

International Accounting Standards Board (“IASB”) as adopted for use in the EU. They do not include

all disclosures that would otherwise be required in a complete set of financial statements and should be

read in conjunction with the 31 December 2017 Annual Report. The financial information for the half

years ended 30 June 2018 and 30 June 2017 does not constitute statutory accounts within the meaning

of Section 434 (3) of the Companies Act 2006 and both periods are unaudited.

The annual financial statements of Sopheon Plc (‘the Group’) are prepared in accordance with IFRS as

adopted by the European Union. The comparative financial information for the year ended 31 December

2017 included within this report does not constitute the full statutory Annual Report for that period. The

statutory Annual Report and Financial Statements for 2017 have been filed with the Registrar of

Companies. The Independent Auditors’ Report on the Annual Report and Financial Statements for the year

ended 31 December 2017 was unqualified, did not draw attention to any matters by way of emphasis and

did not contain a statement under 498(2) - (3) of the Companies Act 2006.

The Group has applied the same accounting policies and methods of computation in its interim

consolidated financial statements as in its 2017 annual financial statements, except for those that relate

to new standards and interpretations effective for the first time for periods beginning on (or after) 1

January 2018, and will be adopted in the 2018 financial statements. New standards impacting the Group

that will be adopted in the annual financial statements for the year ended 31 December 2018 are IFRS 9

Financial Instruments which has given rise to a change in the Group’s accounting policies, and IFRS

15 Revenue from Contracts with Customers which has not impacted the Group’s accounting policies.

Details of the impact of these two standards are given below. Other new and amended standards and

interpretations issued by the IASB that will apply for the first time in the next annual financial statements

are not expected to have a material impact on the Group.

IFRS 9 Financial Instruments

IFRS 9 has replaced IAS 39 Financial Instruments: Recognition and Measurement, and has had an effect

on the Group as follows. The impairment provision on financial assets measured at amortized cost (such

as trade and other receivables) have been calculated in accordance with IFRs 9’s expected credit loss

model, which differs from the incurred loss model previously required by IAS 39. This has not resulted

in a material change to the impairment provision at 1 January 2018 or prior periods.

IFRS 15 Revenue from Contract with Customers

IFRS 15 has replaced IAS 18 Revenue and IAS 11 Construction Contracts as well as various

Interpretations previously issued by the IFRS Interpretations Committee. The Company has adopted the

modified retrospective approach, and there is no material impact on any revenue stream for the Group,

noting the following as it relates to the Group’s revenue streams.

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Basis of preparation and accounting policies (continued)

The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of

promised goods or services to customers in an amount that reflects the consideration to which the entity

expects to be entitled in exchange. Under IFRS 15, the entity recognizes revenue when (or as) a

performance obligation is satisfied, which occurs when control of the goods or services underlying the

relevant performance obligation is transferred to the customer.

Revenue from sales of perpetual software licenses is recognized once no significant obligations remain

owing to the customer in connection with such license sale and are therefore recognized at a point in

time. Sales of software subscription contracts, sometimes known as software-as-a-service contracts, are

deferred and recognized over the period of the agreements. The foregoing approaches are consistent

with the licensing application guidance in IFRS 15, which is to determine whether the license grants

customers a right to use the underlying intellectual property (which would result in transfer of control

at a point in time) or a right to access the intellectual property (which would result in transfer of control

over time). Revenues relating to maintenance, hosting and post-contract support agreements are deferred

and recognized over the period of the agreements. Revenues from implementation and consultancy

services are recognized as the services are performed, or in the case of fixed price or milestone-based

projects, on a percentage basis as the work is completed and any relevant milestones are met, using latest

estimates to determine the expected duration and cost of the project. The foregoing approaches are

consistent with the requirement in IFRS 15 that the revenue is recognized as the performance obligation

is satisfied. Finally, in addition to the principles relating to revenue recognition described above, the

adoption of IFRS 15 also requires certain contract liabilities (previously described as deferred revenue)

to be offset from receivables. Standards effective for periods beginning subsequent to 31 December 2018

There are a number of standards and interpretations which have been issued by the International

Accounting Standards Board that are effective for periods beginning subsequent to 31 December 2018

(the date on which the company’s next annual financial statements will be prepared up to) that the Group

has decided not to adopt early. The most significant of these is IFRS 16 Leases (mandatorily effective

for periods beginning on or after 1 January 2019).

Adoption of IFRS 16 will result in the Group recognizing right of use assets and lease liabilities for all

contracts that are, or contain, a lease. For leases currently classified as operating leases, under current

accounting requirements the Group does not recognize related assets or liabilities, disclosing instead the

total commitment in its annual financial statements. At 31 December 2017 the commitment disclosed

was $2,159,000, which is not materially different to the position at 30 June 2018 or the amount which

is expected to be disclosed at 31 December 2018. Assuming the Group’s lease commitments remain at

this level, the effect of discounting those commitments might be expected to result in right-of-use assets

and lease liabilities of approximately $2.2m being recognized on 1 January 2019. Instead of recognizing

an operating expense for its operating lease payments, the Group would instead recognize interest on its

lease liabilities and amortization on its right of use assets. This would increase the reported EBITDA by

the amount of its current operating lease cost (which for 6 months ended 30 June 2018 was

approximately $340,000).

Since the Group last reported, the Board has decided to apply the modified retrospective method when

the standard is first adopted in its financial statements for the year ended 31 December 2019. Therefore,

there will be no impact on any comparative accounting period (interim or annual) up to and including

31 December 2018, with any leases recognized on balance sheet on the date of initial application of

IFRS 16 (1 January 2019). In applying the modified retrospective approach the Board has further

decided to measure right of use assets by reference to the amount at which lease liabilities are measured

on 1 January 2019. Therefore there will be no immediate impact on net assets as a result of adopting the

standard on that date.

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Going Concern

The consolidated financial statements have been prepared on a going concern basis. In reaching their

assessment, the directors have considered a period extending at least 12 months from the date of

approval of this half-yearly financial report. This assessment has included consideration of the forecast

performance of the business for the foreseeable future, the cash and financing facilities available to the

Group, and the repayment terms in respect of the Group’s borrowings.

Revenue Recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts

receivable for goods and services provided in the normal course of business, net of discounts and sales-

related taxes.

Sales of software licenses are recognized once no significant obligations remain owing to the customer

in connection with such license sale. Such significant obligations could include giving a customer a right

to return the software product without any preconditions, or if the Group is unable to deliver a material

element of the software product by the balance sheet date.

Revenues relating to maintenance, hosting and post-contract support agreements, and software

subscription contracts, are deferred and recognized over the period of the agreements.

Revenues from implementation and consultancy services are recognized as the services are performed,

or in the case of fixed price or milestone-based projects, on a percentage basis as the work is completed

and any relevant milestones are met, using latest estimates to determine the expected duration and cost

of the project.

Deferred Tax

Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the

financial statements and the corresponding tax bases used in the computation of taxable profit, and is

accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized

for all taxable temporary differences. Deferred tax assets are recognized only to the extent that the level

and timing of taxable profits can be measured and it is probable that these will be available against which

deductible temporary differences can be utilized.

Deferred tax is calculated at tax rates that have been enacted or substantively enacted at the balance

sheet date, and that are expected to apply in the period when the liability is settled or the asset realized.

Deferred tax is charged or credited to profit or loss, except when it relates to items charged or credited

directly to equity, in which case the deferred tax is also dealt with in equity.

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Internally Generated Intangible Assets (Research and Development Expenditure)

Development expenditure on internally developed software products is capitalized if it can be

demonstrated that:

• it is technically feasible to develop the product;

• adequate resources are available to complete the development;

• there is an intention to complete and sell the product;

• the Group is able to sell the product;

• sales of the product will generate future economic benefits; and

• expenditure on the product can be measured reliably.

Development costs not satisfying the above criteria and expenditure on the research phase of internal

projects are recognized in the income statement as incurred. Capitalization of a particular activity

commences after proof of concept, requirements and functional concept stages are complete.

Capitalized development costs are amortized over the period over which the Group expects to benefit

from selling the product developed. This has been estimated to be four years from the date of code-

finalization of the applicable software release. The amortization expense in respect of internally

generated intangible assets is included in research and development costs.

3. SEGMENTAL ANALYSIS AND EBITDA

All of the Group’s revenues in respect of the six month periods ended 30 June 2018 and 2017 derived

from the design, development and marketing of software products with associated implementation and

consultancy services. For management purposes, the Group is organized across two principal geographic

operating segments, as used in the Group’s last annual financial statements. The first segment is North

America, and the second Europe. Information relating to these two segments is given below. All

information provides analysis by location of operations and is stated before intra-group charges.

Six months to 30 June 2018 N America Europe Total

$’000 $’000 $’000 External revenues 10,850 5,080 15,930 Profit before tax 1,706 1,142 2,848 EBITDA 2,954 1,168 4,122 Total assets 23,043 11,072 34,115

Six months to 30 June 2017 N America Europe Total

$’000 $’000 $’000 External revenues 7,644 4,861 12,505 Profit before tax 330 1,423 1,753 EBITDA 1,495 1,544 3,039 Total assets 19,432 7,084 26,516

EBITDA is arrived at after adding back net finance costs, depreciation and amortization amounting to

$1,274,000 (2017: $1,286,000) to the profit before tax. Details of these amounts are set out in the

consolidated cash flow statement.

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4. EARNINGS PER SHARE

The calculation of basic earnings per ordinary share is based on earnings of $2,645,000 (2017:

$1,780,000) and on 10,041,292 ordinary shares (2017: 7,386,373) being the effective weighted average

number of ordinary shares in issue during the year.

For the purpose of calculating the diluted earnings per ordinary share, any options and warrants to

subscribe for Sopheon shares at prices below the average share price prevailing during the period are

treated as exercised at the later of 1 January 2018 or the grant date. The treasury stock method is then

used, assuming that the proceeds from such exercise are reinvested in treasury shares at the average

market price prevailing during the period. The diluted number of shares used at 30 June 2018 is

10,586,497 (2017: 9,888,290)

In respect of the period to 30 June 2017 the Group’s convertible loan stock was treated as converted at

1 January 2017, with earnings adjusted for the amount of interest that would have been saved, and the

number of shares adjusted by the number issued on such conversion. All of the Company’s Convertible

Loan Stock was converted into share capital on 22 December 2017.

5. REVENUE VISIBILITY

Revenue visibility at any point in time comprises revenue expected from (i) closed license orders,

including those which are contracted but conditional on acceptance decisions scheduled later in the year;

(ii) contracted services business delivered or expected to be delivered in the year; and (iii) recurring

maintenance, hosting and license subscription streams. The visibility calculation does not include

revenues from new sales opportunities expected to close during the remainder of 2018.

6. INTANGIBLE ASSETS

Certain development expenditure is required to be capitalized and amortized based on detailed technical

criteria, rather than automatically charging such costs in the income statement as they arise. This has led

to the capitalization of $1,213,000 (2017: $1,040,000), and amortization of $1,129,000 (2017:

$1,068,000) during the period.

7. TAXATION

At 30 June 2018, income tax losses estimated at $63m (2017: $65m) were available to carry forward by

the Group, arising from historic losses incurred. These losses have given rise to a recognized deferred

tax asset of $2.0m (2017: $1.4m) and a further, but currently unrecognized, potential deferred tax asset

of $10.9m (2017: $16.2m), based on the tax rates currently applicable in the relevant tax jurisdictions.

An aggregate $9.0m (2017: $9.4m) of these losses are subject to restriction under section 392 of the US

Internal Revenue Code, whereby the ability to utilize net operating losses arising prior to a change of

ownership is limited to a percentage of the entity value of the corporation at the date of change of

ownership.

In addition to income taxes, the Group is also subject to sales and value added tax in the various

jurisdictions in which it operates. Recent developments US case law, as well as audits by authorities

have highlighted the complex sales tax compliance requirements associated with individual US states.

The Group is undertaking an exercise to review its procedures in this regard. Contractually, the Group’s

policy is to ensure that liability for sales tax is a customer liability.

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8. RELATED PARTY TRANSACTIONS

Prior to 22 December 2017 £1 million nominal (equivalent to $1.3m) of the Company’s Convertible

Loan Stock was held by directors and management. All of the Company’s Convertible Loan Stock was

converted into Sopheon shares on that date. Except for the foregoing, there were no related party

transactions required to be disclosed in any period. Transactions between the Company and its

subsidiary undertakings, which are related parties, have been eliminated on consolidation and are not

disclosed in this note.

9. PRINCIPAL RISKS AND UNCERTAINTIES

There are a number of potential risks and uncertainties which could have a material impact on the

Group's performance over the remaining six months of the financial year and could cause actual results

to differ materially from expected and historical results. The directors do not consider that the principal

risks and uncertainties have changed since the publication of the annual report for the year ended 31

December 2017, which contains a detailed explanation of the risks relevant to the Group on page 20,

and is available at www.sopheon.com. Other principal risks and uncertainties of the Group for the

remaining six months of the current financial year are disclosed in the Chairman’s Statement and the

notes to the interim financial information included in this half-yearly financial report.

10. CAUTIONARY STATEMENT

This report contains certain forward-looking statements with respect to the financial condition, results

of operations and businesses of Sopheon plc. These statements are made by the directors in good faith

based on the information available to them up to the time of their approval of this report. However, such

statements should be treated with caution as they involve risk and uncertainty because they relate to

events and depend upon circumstances that will occur in the future. There are a number of factors that

could cause actual results or developments to differ materially from those expressed or implied by these

forward-looking statements. Nothing in this announcement should be construed as a profit forecast.

The information communicated in this announcement is inside information for the purposes of

Article 7 of Regulation 596/2014 of the European Parliament and of the Council of 16 April 2014 on

market abuse.

http://www.sopheon.com/

INDEPENDENT REVIEW REPORT TO SOPHEON PLC

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Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly

financial report for the six months ended 30 June 2018 which comprises the consolidated income statement;

consolidated statement of comprehensive income; consolidated statement of financial position; consolidated

cash flow statement; consolidated statement of changes in equity; and associated notes.

We have read the other information contained in the half-yearly financial report and considered whether it

contains any apparent misstatements or material inconsistencies with the information in the interim financial

information.

Directors’ Responsibilities

The interim report, including the financial information contained therein, is the responsibility of and has been

approved by the directors. The directors are responsible for preparing the interim report in accordance with

the rules of the London Stock Exchange for companies trading securities on AIM, which require that the

interim report be presented and prepared in a form consistent with that which will be adopted in the company's

annual accounts having regard to the accounting standards applicable to such annual accounts.

Our Responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in

the half-yearly report based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the Company in meeting

the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and for

no other purpose. No person is entitled to rely on this report unless such a person is a person entitled to rely

upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorized

to do so by our prior written consent. Save as above, we do not accept responsibility for this report to any

other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland)

2410, ‘Review of Interim Financial Information Performed by the Independent Auditor of the Entity’, issued

by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information

consists of making enquiries, primarily of persons responsible for financial and accounting matters, and

applying analytical and other review procedures. A review is substantially less in scope than an audit

conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us

to obtain assurance that we would become aware of all significant matters that might be identified in an audit.

Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of

financial statements in the half-yearly financial report for the six months ended 30 June 2018 is not prepared,

in all material respects, in accordance with the rules of the London Stock Exchange for companies whose

shares are admitted to trading on AIM.

BDO LLP Chartered Accountants & Registered Auditors, London, United Kingdom 22 August 2018

BDO LLP is a limited liability partnership registered in England and Wales (with registered number

OC305127).

results for the 6 months to 30 june 2018 - sopheon · 2020-06-03 · alice lane / camille gochez...

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